CANADA FX DEBT-C$ weakens as BoC's more dovish stance offsets oil rally
(Adds quotes from analysts and details on Bank of Canada's Lane and housing starts, updates prices) * Canadian dollar ends at C$1.2928, or 77.35 U.S. cents * Loonie touches its weakest since Monday at C$1.2935 * Bond prices lower across steeper maturity curve * 10-year yield touches its highest in more than two weeks By Fergal Smith TORONTO, Sept 8 (Reuters) - The Canadian dollar weakened to a three-day low against its U.S. counterpart on Thursday, pressured by the Bank of Canada's more dovish stance, although losses for the commodity-linked currency were restrained as oil rallied. Losses for the loonie follow the currency's retreat from a nearly three-week high on Wednesday as the Bank of Canada warned that the economy could be weaker than it anticipated just two months ago as exports disappointed. Canada's economy is still running on two speeds, with household spending growth holding up even as sectors linked to low commodity prices struggle, Bank of Canada Deputy Governor Timothy Lane said on Thursday. Weaker equity markets also weighed on Canada's risk-sensitive currency, said Eric Viloria, currency strategist at Wells Fargo. European and U.S. stock markets fell as the European Central Bank kept its already loose policy stance unchanged. There had been a view among some investors that increased stimulus from the European Central Bank would reduce the Federal Reserve's propensity to raise interest rates, said Colin Cieszynski, senior market analyst at CMC Markets Canada. The U.S. dollar edged higher against a basket of major currencies as Treasury yields firmed. U.S. crude oil futures settled up $2.12 at $47.62 a barrel after U.S. inventory data showed a surprisingly large drawdown in crude stocks. Oil is one of Canada's major exports. The Canadian dollar ended at C$1.2928 to the greenback, or 77.35 U.S. cents, weaker than Wednesday's close of C$1.2900, or 77.52 U.S. cents. The currency's strongest level of the session was C$1.2852, while it touched its weakest since Monday at C$1.2935. Canadian housing starts fell more than expected in August compared with July as both multiple and single-detached starts declined, data from the national housing agency showed on Thursday. In separate data, the value of Canadian building permits issued in July rose by a less-than-expected 0.8 percent from June. Canadian government bond prices were lower across a steeper yield curve in sympathy with U.S. Treasuries. The two-year bond fell 5 Canadian cents to yield 0.572 percent and the benchmark 10-year tumbled 78 Canadian cents to yield 1.087 percent. The 10-year yield touched its highest since Aug. 22 at 1.117 percent. Canada's August employment report is due on Friday. Investors will be looking to see whether the labor market can recover some of the 31,200 jobs it unexpectedly lost the month before. (Reporting by Fergal Smith; Editing by Chizu Nomiyama and James Dalgleish)
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